Volkswagen Q1 earns soar to $2.5 billion

FRANKFURT, Germany (AP) — Automaker Volkswagen AG said Wednesday its net profit jumped to 1.71 billion ($2.5 billion) in the first quarter as sales rose strongly in North America and in emerging markets in Asia and South America.

The company reiterated that this year’s earnings would exceed last year’s, despite a drag on profits from see-sawing exchange rates and higher raw materials prices.

Big jumps in vehicle deliveries in China, Mexico and Argentina — up 20 percent or more — and in India, where they more than tripled, showed how rapidly growing emerging markets are eclipsing richer countries in Europe as markets for European manufacturers.

Analyst Max Warburton at Sanford C. Bernstein called the result “a stunning beat,” especially when measured by EBIT, or earnings before interest and taxes, of 2.9 billion, which represents a “fantastic” operating profit margin of 7.8 percent across the group. That includes not just higher-margin Audi but the mass market Volkswagen brand as well, a segment where margins are usually lower.

“VW’s operating result is far beyond what we could have imagined possible for this company and if sustained — and of course there are many if’s — would suggest that VW (and its German peers, which are probably sharing the spoils of the boom in demand for German cars) is a fundamentally undervalued stock.”

Warburton said the earnings appear to be a part of a wider trend in favor of German cars that also favors competitors BMW AG and Daimler AG’s Mercedes-Benz brand.

Sales in Western Europe grew more slowly, and were hard hit in countries saddled with heavy debt and slow growth. Sales in Britain rose only 2.4 percent, while they were flat in Italy and sank in Spain, where the unemployment rate is around 20 percent.